Modified Dietz method: Difference between revisions

Revision as of 02:33, 6 June 2019

Revision as of 17:38, 21 August 2019

Line 30:

|quote=A slightly improved version of this method is the day-weighted, or modified Dietz, method. This method adjusts the cash flow by a factor that corresponds to the amount of time between the cash flow and the beginning of the period.}}</ref> The original idea behind the work of Peter Dietz was to find a quicker, less computer-intensive way of calculating an IRR as the iterative approach using the then quite slow computers that were available was taking a significant amount of time; the research was produced for BAI, Bank Administration institute.{{Citation needed|date=October 2017}}

His approximation was therefore to generate money weighted rates of return for the period. Because there is a GIPS requirement to produce a valuation on a monthly basis at least, using modified Dietz with monthly valuations provides a series of individual monthly money-weighted rates with which can be compounded together to produce a good quality approximation for the longer time period time weighted rate of return.<ref>{{Cite journal|last=Dietz|first=Peter|date=May 1968|title=Measurement of Performance of Security Portfolios COMPONENTS OF A MEASUREMENT MODEL: RATE OF RETURN, RISK, AND TIMING|journal=The Journal of Finance|volume=Volume 23, Issue 2|issue=2|pages=267–275|doi=10.1111/j.1540-6261.1968.tb00802.x}}</ref>

COMPONENTS OF A MEASUREMENT MODEL: RATE OF RETURN, RISK, AND TIMING|journal=The Journal of Finance|volume=Volume 23, Issue 2|issue=2|pages=267–275|doi=10.1111/j.1540-6261.1968.tb00802.x}}</ref>

==Formula==